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  • Where I Am Finding Value 0 comments
    Mar 14, 2012 8:15 PM | about stocks: TSCDF, HPQ, CBIO, CIBY

    I steer clear of microcaps nowadays.I cannot find anymore the additional cheapness advantage I were used to when looking for smaller capitalization companies.
    Many people think micro net-nets are cheap,I think the majority of them aren't cheap,most of today's netnets are garbage and you don't buy garbage cause it's cheap.You can use the basket approach but a basket of garbage doesn't solve the problem.
    I don't know the reason,maybe there's just too much liquidity in the market and when there's extra-liquidity and cheap money investors overexploit the most unknown hide-outs of value.
    So what's the key...maybe you want to look for illiquid situations,the value proposition changes there because people are afraid of locking in their money for more than some days or weeks.There's this stock CIBY many bloggers are talking about recently,google it.I was able to buy some shares back in July but now it's almost impossible because trading volumes are close to 0.

    The way you find opportunities is strange by the way,many things are fully priced and then you find a 47b company trading for around 5 times free cash flow,and you see the cashflow are more stable than many people think,the company is a leader in some sectors,the trend for the industry is positive,the cashflow are there they're just obscured by dumb acquisitons,depreciation amortization of intangibles,restructuring expenses and you know in a couple of years it will be over....So then you try to figure out what if the company is able to buy back shares at these prices and it's amazing of much value thy can create doing so.There's no way you could be wrong 3-4 years from now,the catalyst is already in place they need to go back to the basics and wait.There's nothing wrong with the business but they've deployed capital in a bad manner,the cashflow will take care of r&d,the balance sheet and the shareholders.The company is hewlett packard and if they do things well maybe they'll grow again revenues at a 5+% pace,they have some sinergies you don't have in many other tech companies,in fact they're not anymore a pure tech company.You don't want to bet on it and you don't need to but it's a possibility,you need the business to not disappear tomorrow in order to not loose money,in other words the margin of safety is quite high.
    I own stocks with an average price of 24$(6% of my portfolio),I'm a buyer again below 22$,at 22$ the margin of safety would be surprisingly high,at 20 is even higher,below 20$ we reach the bargain zone and I become an aggressive buyer.
    What is strange is that it's a surprisingly high margin of safety for such a well-known and solid company but opportunities are coming in different ways...
    Another big cap that is pretty cheap is Tesco,I'm not a buyer here cause I'm looking for different options but I suggested it to some friends,it's a safe dividend and a good company,risk of loosing money long term is really low,it's what I define a good "risk-adjusted inflation hedge".

    I bought two net-nets recently,one of which I already sold.One was a closed end fund SVVC bought below net cash,I'll write an article about it cause it was a funny trade.The second one is Tragacept bought at 5$,coincident with the Graham price: exactly 67% of net cash.I was lucky enough cause 5$ signaled a bottom.SVVC was a good performer(with a strong catalyst) almost 100%.Targacept is in the 7.50$ area and I don't plan to sell.

    I don't care about market valuations but I care about it in the way it affects my bargain hunting,in the last months I was able to find some good opportunities(not so many but I found some),actually it's becoming increasingly difficult so I'm finding value mostly in my cash balance...And it's the value of future opportunities that I think some day wil arrive...

    Have a Good Hunting!

    Disclosure: I am long HPQ, TRGT.

    Additional disclosure: I sold out all of my SVVC shares as the closed end fund reached its NAV

    Stocks: TSCDF, HPQ, CBIO, CIBY
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